2019 (1) TMI 956 - HC - Income Tax

Reopening of assessment - deduction u/s 80IB(10) denied - AO seeks to reopen the assessment on the basis of the report furnished by the District Valuation Officer estimating the cost of construction - non rejection of books of accounts - invoking of section 142A - Held that - Section 142A of the Act as it stood at the relevant time provided that where an estimate of the value of any investment referred to in section 69 or section 69B of the Act is required to be made for the purpose of making assessment or reassessment under the Act, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. For the purpose of invoking section 142A of the Act, the Assessing Officer has to first come to the conclusion that the assessee has made investments which are not recorded in the books of account, in which case, he would reject the books of account under sub-section (3) of section 145 of the Act and make an assessment in the manner provided in section 144. Assessing Officer sought to provisionally assess the petitioner which is not contemplated under the Income Tax Act, 1961. The Assessing Officer, while framing the assessment, may either accept the cost as given by the assessee or reject the same and make a best judgment assessment, but, there is no provision under the Act which permits the Assessing Officer to make a provisional assessment subject to the report of the District Valuation Officer. Once the Assessing Officer accepts the books of account and frames assessment, reopening the assessment solely on the basis of the report of the District Valuation Officer without any other material coming to his notice, would amount to mere change of opinion. In the facts of the present case, it is an admitted position that before making the reference to the District Valuation Officer, the Assessing Officer did not reject the books of account and on the contrary, framed the assessment on the basis of the cost of construction as reflected in the books of account. Under the circumstances, in the first place, no reference under section 142A of the Act as it stood at the relevant time could have been made without rejecting the books of account. Moreover, merely on the basis of the DVO's report, without any other material indicating escapement of income for the year under consideration, the Assessing Officer was not justified in reopening the assessment for the year under consideration. The Supreme Court, in the case of Dhariya Construction Co. 2010 (2) TMI 612 - SUPREME COURT OF INDIA has held that, opinion given by the DVO is not per se information for the purpose of the reopening an assessment under section 147 of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reopening of assessment is based on a mere change of opinion.
3. Whether the District Valuation Officer's (DVO) report can be the sole basis for reopening the assessment.
4. Whether the Assessing Officer (AO) can refer the matter to the DVO without rejecting the books of account.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961 for Reopening the Assessment:
The petitioner challenged the notice dated 30.03.2018 issued under Section 148 of the Income Tax Act, proposing to reopen the assessment for the assessment year 2011-12. The petitioner argued that the notice was issued beyond the period of four years from the end of the relevant assessment year and that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The court noted that the reopening of assessment was solely based on the DVO's report dated 31.03.2014, which estimated the cost of construction at ?8,99,96,351/-, whereas the petitioner had shown ?5,94,52,001/-.

2. Whether the Reopening of Assessment is Based on a Mere Change of Opinion:
The petitioner contended that the reopening was based on a mere change of opinion, which is not permissible in law. During the original assessment proceedings, all relevant details, including construction costs, were scrutinized, and the assessment was finalized under Section 143(3) on 31.03.2014. The court agreed that reopening based solely on the DVO's report, without any new material, amounted to a change of opinion.

3. Whether the District Valuation Officer's (DVO) Report Can Be the Sole Basis for Reopening the Assessment:
The court referred to the Supreme Court's decision in Assistant CIT v. Dhariya Construction Co., which held that the DVO's report cannot be the sole ground for reopening an assessment. The court observed that the AO had accepted the books of account and framed the assessment without rejecting them. Therefore, reopening the assessment based solely on the DVO's report was not justified.

4. Whether the Assessing Officer (AO) Can Refer the Matter to the DVO Without Rejecting the Books of Account:
The petitioner argued that the AO could not refer the matter to the DVO without first rejecting the books of account. The court referred to its earlier decision in Kisan Proteins (P) Ltd. v. Assistant Commissioner of Income-tax, which stated that the AO must first reject the books of account before making a reference to the DVO under Section 142A. The court noted that the AO had made the reference without rejecting the books of account, which was impermissible.

Conclusion:
The court concluded that the reopening of the assessment based solely on the DVO's report was impermissible in law. The impugned notice dated 30.03.2018 issued under Section 148 of the Income Tax Act was quashed and set aside. The petition was allowed, and the rule was made absolute with no order as to costs.